ATO – Bitcoin Subject To GST

The Australian Tax Office has decided against treating Bitcoin and other crypto currencies as money, with investors set to pay capital gains tax on the sale of any bitcoins.

Under the ATO’s guidance paper and rulings, Bitcoin transactions will be treated like barter transactions with similar taxation consequences.

“Generally, there will be no income tax or GST implications for individuals if they are not in business or carrying on an enterprise and they pay for goods or services in bitcoin,” the ATO said in its guidance.

“Where an individual uses bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded as a personal use asset – provided the cost of the bitcoin is $10,000 or less.”

According to the ATO guidelines, businesses will need to record the value of bitcoin transactions as a part of their ordinary income and must charge GST when they supply bitcoin and may be subject to GST when receiving bitcoin in return for goods and services.

This potential for ‘double GST’ impost was on the cards even before the ATO’s guidelines were released and many businesses that accept Bitcoin were hoping that the tax office would opt to treat crypto-currencies the same as money or foreign exchange.

A retrograde step

While ATO senior assistant commissioner Michael Hardy said that the draft tax rulings provide certainty for the Australian community, the local Bitcoin community has labelled the guidance as a retrogressive step that could potentially damage the emerging digital currency businesses in the country.

According to Ron Tucker, the chair of the Australian Digital Currency Commerce Association and a partner at digital currency trading service BitTrade, the ATO’s approach puts Australia on the back foot, especially at a time when the regulators across the globe are walking up to the potential of crypto-currencies in the mainstream space.

“This is quite a retrograde step and at odds with the approach taken by other countries,” Mr Tucker told Business Spectator.

There’s no consistent approach towards the treatment of Bitcoin globally, with advice from taxation offices overseas decidedly mixed. Both the US and Singapore view Bitcoin as property, not money, for VAT and GST purposes, respectively.

Britain, on the other hand, views Bitcoin more like fiat currency, with converting Bitcoins not considered a barter transaction and not incurring VAT.

However, Mr Tucker warns that the ATO’s draft ruling could potentially drive a number of budding Bitcoin businesses offshore.

The Australian landscape has seen a flurry of activity in businesses – in the payments space and ATM providers – that are leveraging the adoption of bitcoins in the consumers space to drive their models.

“A lot of these businesses have sprung up very quickly and many of them will now look to move offshore,” Mr Tucker said.

Melbourne-based Bitcoin company CoinJar’s co-founder Asher Tan said that while his company already has international expansion plans on the cards, the ATO’s guideline paper certainly gives businesses like CoinJar plenty to think about.

“But there are ways to work around the regime,” he said.

The ATO’s guidance paper, rulings and details on the tax treatment of Bitcoin and other crypto-currencies are available online at ato.gov.au